Shutterstock, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results; comparisons are with Q1 2023. Shutterstock operates a global creative platform for licensed content and data, distribution, and services.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $214.3 million | $215.3 million | Down 0.4% |
| Operating income | $16.7 million | $40.4 million | Down 59% |
| Operating margin | 7.8% | 18.7% | Down 10.9 percentage points |
| Net income | $16.1 million | $32.8 million | Down 51% |
| Diluted EPS | $0.45 | $0.90 | Down 50% |
| Operating cash flow | $8.3 million | $66.8 million | Down $58.5 million |
| Adjusted EBITDA (non-GAAP) | $56.0 million | $69.8 million | Down 20%; margin 26.1% vs. 32.4% |
| Adjusted free cash flow (non-GAAP) | $11.2 million | $50.9 million | Down $39.6 million |
Content revenue fell 10% to $173.8 million, while Data, Distribution, and Services revenue rose 90% to $40.5 million; data-offering revenue alone grew 73%. Paid downloads declined to 35.0 million from 42.7 million, while revenue per download rose to $4.97 from $4.41. Active subscribers declined to 499,000 from 559,000; average revenue per customer for the last twelve months increased to $418 from $356.
Operating costs increased 13% to $197.6 million. Cost of revenue rose 13%, sales and marketing 18%, and product development 37%; general and administrative expense declined 5%. Reported other income included a $3.8 million unrealized investment gain, primarily related to the Meitu investment received in exchange for the Company’s ZCool preferred shares. The effective tax rate was 20.9%, versus 20.7%.
Liquidity, debt, and capital allocation
- Cash and cash equivalents were $71.8 million at quarter-end, down from $100.5 million at year-end 2023.
- Debt under the revolving credit facility was $30 million; remaining borrowing capacity was $67 million, net of standby letters of credit. The Company reported compliance with facility covenants.
- Operating cash flow was $8.3 million; investing cash outflow was $16.5 million and financing cash outflow was $18.6 million. Investing cash flows included the Backgrid acquisition and capital expenditures, partly offset by $18.4 million received for Giphy retention compensation.
- The Company paid $10.7 million in dividends, or $0.30 per share, and announced another $0.30 quarterly dividend payable in June. No shares were repurchased during the quarter; $71.8 million remained under the repurchase authorization.
- Management stated cash, operating cash flows, and available credit were expected to cover anticipated needs for at least the next 12 months. Non-lease obligations were approximately $73.9 million; operating lease obligations were approximately $45 million.
Material changes, outlook, and risks
- Management attributed weaker Content revenue primarily to weakness in new-customer acquisition. North American revenue increased 11%, while Europe declined 6% and the rest of the world declined 15%.
- Management cited higher hosting, software, employee, and amortization costs, including costs associated with Giphy and Backgrid. First-quarter operating cash flow was also affected by typical year-end bonus and commission payments and Giphy workforce payments.
- Backgrid was acquired on February 1 for approximately $20 million, subject to adjustments; the acquisition added $19.8 million of goodwill. The quarter included $6.8 million of non-recurring Giphy retention compensation expense, which management excludes from certain non-GAAP measures. Recurring Giphy retention compensation expense was $7.1 million.
- After quarter-end, Shutterstock agreed to acquire Envato for approximately $245 million, with closing anticipated in Q3 2024 subject to regulatory and other customary conditions. Financing commitments include a $125 million term loan and a $250 million revolving facility; definitive financing and closing conditions remain outstanding.
- No specific full-year financial guidance is provided in the supplied filing text. Management noted seasonal and acquisition-related quarterly variability, discretionary customer spending, competition, and timing of data-deal revenue recognition. It also cited foreign-exchange exposure; a 10% exchange-rate movement against foreign-currency revenues is estimated to affect revenue by approximately 3%. The Company does not currently hedge this exposure.
- The filing reported no material changes to previously disclosed risk factors, no material active litigation, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether subscriber and paid-download declines stabilize, and whether higher revenue per download offsets reduced Content activity.
- Whether growth in data and other services can sustainably offset weakness in the core Content business.
- How acquisition-related costs, Giphy retention payments, and integration affect operating margins and cash generation.
- Final Envato purchase terms, regulatory approvals, financing agreements, and the resulting debt and liquidity position.
- The composition and sustainability of non-GAAP results, particularly adjustments for Giphy retention expense and investment gains; adjusted measures are not substitutes for GAAP results.
- Customer concentration in receivables: one customer represented approximately 18% of accounts receivable at March 31, 2024.